Budget pension changes

The Budget delivered by the Chancellor back in March 2023 announced some significant pension changes that will soon be coming into effect after the tax year end on the 5 April 2024.

In this article, we aim to inform you of what these changes are and how they may impact your financial planning.

Changes to individual contributions

There were three changes made to individual pension contributions in the 2023 Spring Budget. Firstly, the amount you can put into your pension in a single year rose from £40,000 to £60,000. This is known as the Annual Allowance.

Secondly, the amount you can put into your pension in a single year if you had taken any income from a money purchase pension (also referred to as defined contribution) rose from £4,000 to £10,000. This is known as the Money Purchase Annual Allowance and does not apply to final salary pensions.

The Chancellor also announced the rise in the amount of taper relief for certain higher earners from £4,000 to £10,000.

Finally, the lifetime allowance previously set at £1,073,100 will be abolished by 6 April 2024. The lifetime allowance tax charge has been removed and instead funds withdrawn in excess of this will be taxed at your marginal rate of income tax.

Review pension changes before tax year end

As there are some significant changes in pension legislation in 2024 it is a good time to review these changes with your financial planner to see if they affect you. You may need to take some action before the start of the new tax year in April 2024.

The pre April 2023 rules meant that the focus was on the lifetime allowance and the tax rules around this. This changes in April 2024, with focus now on the amount of tax-free cash/PCLS you take in your lifetime. This is a tax-free payment which most people can usually receive when they start accessing their pension benefits. It is typically 25% of the value of the pension benefits being accessed, up to a maximum of £268,275.

If you have any form of pension protection your level of tax-free cash may be higher. It is also possible to start contributions again without losing any protection. If you do have any form of pension protection, please ensure that your financial planner has registered this with your pension platform provider.

Transitional Tax Free Amount Certificate (TTFAC)

There are some areas of change where certain individuals could miss out on receiving their full entitlement to tax free cash/PCLS. This means that you may need to apply for a Transitional Tax Free Amount Certificate (TTFAC). This certifies the amount of an individual’s lump sum allowance (ILSA), and how much the individual’s lump sum and death benefit allowance (ILSDBA) has been used up before 6 April 2024.

The areas we have identified are:

  • You have purchased a guaranteed annuity, but you didn’t take any tax free cash/PCLS or didn’t take the full amount of tax free cash/PCLS you were entitled to.
  • You have taken a final salary/defined benefit pension, but you didn’t take tax free cash/ PCLS or didn’t commute the pension to receive the tax-free cash/PCLS entitlement.
  • You have taken benefits when the lifetime allowance was lower than £1,073,100 (Tax years 2016/17 to 2019/20).
  • You transferred uncrystallised benefits to a qualifying recognised overseas pension scheme (QROPS). The lifetime allowance will have been used up without any tax-free cash/PCLS being paid.
  • You took benefits from a scheme including disqualifying pension credits in respect of pension sharing. As there was never any entitlement to tax-free cash/PCLS, however, it was assessed against the lifetime allowance.
  • You are over age 75 and have ‘unused pension funds’ (i.e. where they haven’t taken benefits yet). These funds will have been tested against, and used up, some of the lifetime allowance. You may benefit with a TTFAC to ensure that you don’t miss out on your tax-free cash/PCLS entitlement.

Crucially, a TTFAC must be applied for before the first-time tax-free cash is taken after 5 April 2024. 

Seek advice

It is prudent to review any pensions you have taken. This will allow you to work with your financial planner to achieve the right outcome and if needed obtain the TTFAC. If you are looking for a financial planner to assist you in reviewing your pensions, please contact us today.

The information contained within this document is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.
Tax treatment depends upon individual circumstances and is based on current UK tax legislation, that is subject to change at any time.
The opinions stated in this document are those of the author and do not necessarily represent the view of Progeny and should not be relied upon to make a financial decision.
If you are unsure about the suitability of otherwise of any product or service, we recommend that you seek professional advice.

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and the value of investments can fall as well as rise. No representation is made that the stated results will be replicated.

Nick Onslow

Nick Onslow

Chartered Financial Planner

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